NAGASE & CO., LTD.

Delayed response to policy and regulatory changes, along with shifts in consumer preferences toward decarbonization and away from petroleum, pose risks of business opportunity loss, including reduced value provided to customers, reputational damage, and the disappearance of trade volume for environmentally burdensome products. There are also concerns about supply chain disruptions and stagnation in sales and production activities due to the intensification of natural disasters. As countermeasures, the company has formulated a 2050 carbon neutrality declaration, expressed support for TCFD, and established a Sustainability Promotion Committee to address these issues.

Delayed response to social requirements such as ESG, human rights, and the environment poses risks of reputational damage and loss of business opportunities due to exclusion from supply chains. The impact would be significant if human rights violations or environmental pollution issues within the supply chain were to become apparent. As countermeasures, the company has formulated the NAGASE Group Human Rights Basic Policy and Supply Chain Management Policy, and strives for the sustainable use of natural capital.

In addition to foreign exchange fluctuation risk in foreign currency-denominated transactions in imports/exports and non-trade transactions, there is fluctuation risk in the yen conversion of financial statements of overseas group companies (mainly in US dollars and Chinese yuan). For our group, which operates globally, the impact on earnings is significant. As a countermeasure, the company hedges through forward foreign exchange contracts to minimize risk, though complete avoidance is difficult.

There is a risk of increased procurement costs due to fluctuations in the market prices of products handled, difficulty in passing on costs to sales prices, and significant losses arising from the collapse of the supply-demand balance for petrochemical products. In inventory transactions, valuation losses on inventory assets may also occur during sudden market changes. As countermeasures, the company links purchases and sales in direct-delivery transactions, secures guaranteed offtake from customers, and optimizes inventory levels based on supply-demand forecasts.

There is a risk that management targets such as sales, profit, ROE, and ROIC will not be achieved due to economic downturns, failure to respond to industry restructuring, market contraction from the declining birthrate and aging population in Japan, China, and South Korea, and overlooking changes in consumer behavior. The pace of change in the external environment is accelerating, increasing the likelihood of unpredictable events occurring. As a countermeasure, the company revised its materiality in September 2024, newly adding three items: extension of healthy life expectancy, resource circulation, and supply chain sustainability.

Rising geopolitical tensions such as a Taiwan contingency, US-China conflict, and the situation in Iran pose risks of increased trade costs due to tariff hikes and the introduction of non-tariff barriers, leading to impacts on the supply chain and constraints on business activities. Slowing regional economic growth due to stricter investment regulations and political instability may also lead to management targets not being achieved. As a countermeasure, the company strives to build a supply chain that avoids dependence on specific countries, regions, or suppliers.

There is a risk that invested capital cannot be recovered, resulting in losses, due to failed entry into new businesses or erroneous investment decisions, a risk of expanded losses due to delayed decisions to withdraw from businesses, and a risk of decreased asset value due to declines in the share price of held equities. Deterioration in pension asset management performance may also affect profit and loss through increased retirement benefit expenses. As countermeasures, the company has established a system of multifaceted evaluation and analysis based on investment guidelines, as well as regular monitoring after investment execution.

There is a risk that market share in key business areas will shrink due to the rise of competitors and innovation, resulting in the loss of competitive advantage for the products and services handled. This also includes the risk of losses arising from failures in overseas strategy, such as concentrating resources in specific overseas regions or delaying shifts to other regions. As countermeasures, the company continuously gathers information on changes in customer demand, expands its supplier base, flexibly changes regional strategies, and develops new products and services.

There is a risk of business and operational interruption or suspension due to computer virus infections or network failures caused by cyberattacks, as well as risks of damages compensation, reputational damage, and share price decline due to leakage of confidential information. Our group plays an important role in the customer supply chain, so the impact of any disruption would be far-reaching. As countermeasures, the company is strengthening its security framework along three axes:

There is a risk that business activities and profitability could be impaired due to dependence on other companies for core technologies, excessive dependence on specific suppliers, bankruptcy or delayed collection from business partners, transactions with anti-social forces or sanctioned parties, and unfavorable contract terms. For our group, which operates business globally and in a diversified manner, credit risk management of business partners is an important issue. Risk evaluation by the responsible department and responses in daily operations are implemented, but complete avoidance of the risk is difficult.